Typically, MCSs are regarded as tools of implementing strategies (Simons, 1991), with Merchant (1982) defining MCSs as the processes and/or procedures taken by management to implement or modify strategies. MCSs are also perceived as the way managers use processes and procedures to promote the achievement of their organisational goals (for example, Bisbe and Otley, 2004; Kloot, 1997; Kober et al., 2007; Ouchi, 1977). For instance, Ouchi (1979) regards MCSs as tools used to achieve organisational goals through cooperation from various employees and organisational units, and Kloot (1997) refers to a MCS as a system used to enable the achievement of organisational goals through the efficient and effective use of resources. Other scholars define MCSs from a behavioural perspective, with Abernethy and Chua (1996) and Flamholtz et al. (1985) referring to the MCS as a process of influencing behaviour. Similarly, Euske and Riccaboni (1999) define the MCSs as the process of managing internal interdependencies by aligning employees’ behaviour with the objectives of an organisation. Finally, Simons (1994) views the MCS as facilitating change, regarding it as a way of altering or maintaining organisational activities through formal information-based routines and procedures.
The nature of a MCS in the public sector is originally different from that of the private sector due to the principal differences between the two sectors. Specifically, while the private sector is known for its profit motive, the public sector is known for its provision of social welfare, equity and equality in the delivery of services, an “absence of competitive pressure” (Boyne, 2002, 100), and “an absence of business values and techniques” (Hood, 2000, 7).
Historically, control in the public sector has occurred through political or public accountability and controls (Broadbent and Laughlin, 2003). The traditional public sector
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controls and structures were designed based on Weberian bureaucracy, founded on Max Weber’s famous ideal type of bureaucracy in 1911 (Dunleavy and Hood, 1994). Such controls and structures were characterized by rigid hierarchy, reliance on files and written records, centrality of authority and formalized rules and procedures (Dunleavy and Hood, 1994; Hood, 2000; Verbeeten, 2008). However, in many countries, such structures and controls were considered to be inefficient and ineffective, and considered to fail to meet the accountability requirements of society. Accordingly, a number of reforms have taken place in many public institutions in many countries including the Collaborative Public Management in the United States; the Financial Management Initiative (FMI) in the United Kingdom; and the State Sector and Public Finances Act in New Zealand (Christensen and Lægreid, 2007; Hoque and Moll, 2001; Mascarenhas, 1993). In Australia, a national legislation, National Competition Policy (NCP), was implemented in 1993, aimed at transforming the public sector towards the NPM ideals.
The NPM reform has assumed a dominant role in the reforms of the public sector in the 1980s, 1990s (Lapsley, 1999) and beyond (Lapsley, 2009; Levy, 2010), and is considered a blueprint for the transformation of the public sector in OECD (Hood, 1995) and developing countries (De Vries and Nemec, 2013; Lapsley, 2009). Although there are overlaps of what NPM entails, some commentators consider the “central element of the reform programme associated with New Public Management (NPM)” as the importation of “managerial processes and behaviour from the private sector” (Boyne, 2002, 97). In particular, Lapsley (2009) and Barretta and Busco (2011) regard NPM as the deployment of private sector management practices in an attempt to transform and modernize the public sector. Thus, many of the private sector oriented management and control mechanisms are expected and even encouraged to be diffused into the public sector (Lapsley, 2009), and as such “the past decade has witnessed various changes in the management control of public sector
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organizations” (Verbeeten, 2008, 429). Accordingly, considering that the NPM “has enlarged the scope of the MCS used in the government sector” (Appuhami, 2011, 130), this thesis provides an insight into the nature of the MCSs used and their effectiveness in the public sector. This is imperative given the controversies as to the whether the public sector is really transforming towards a private sector orientation and whether the private sector oriented systems and practices are yielding the expected benefits espoused by the NPM reforms.
2.1.1 Aspects of MCSs
While the terms management accounting systems and management accounting practices are used interchangeably with MCSs, the MCS is a broader concept comprising other aspects in addition to management accounting practices (Chenhall, 2003). Specifically, the various aspects of MCSs include management accounting practices, the characteristics of MCSs, the manner (approach) of using MCSs, and different typologies of control.
This thesis examines three aspects of MCSs, including management accounting practices, the approach to using MCSs and the characteristics of MCSs. These aspects of MCSs are examined due to their comprehensiveness and relevance to the context of the study.
Management accounting practices are organisational information systems that provide an organisation with relevant information to add value to its customers and the organisation at large (Langfield-Smith, 2009). These practices also aid organisations to promote intended behaviour and facilitate effective decision making (Axelsson et al., 2002). Management accounting practices are broadly categorised into traditional and contemporary practices, based on the period of their development and/or their characteristics. While traditional practices are those management accounting practices that were developed prior to the 1980s (Kaplan and Johnson, 1987), contemporary management accounting practices were
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developed over the last three decades. The distinctive features of traditional management accounting practices are that they are short term in focus, and internally and financially oriented (Chenhall and Langfield-Smith, 1998a; Pavlatos and Paggios, 2008). In contrast, contemporary management accounting practices are strategic in nature, focusing on the provision of both historic and future, financial and non-financial, and internal and external information (Chenhall and Langfield-Smith, 1998b; Hyvönen, 2005). The contemporary and traditional management accounting practices examined in this study are adapted from Chenhall and Langfield-Smith’s (1998a) framework of management accounting practices, and include eight contemporary practices (Benchmarking, Activity Based Management, Activity Based Costing, the Balanced Scorecard, Value Chain Analysis, Total Quality Management, Key Performance Indicators and Strategic Cost Management) and seven traditional practices (Formal Strategic Planning, Budgeting for Planning and Control, Capital Budgeting, Cost Benefit Analysis, Standard Costing, Variance Analysis, and Return on Investment).
The approach to using MCSs refers to the manner in which MCSs are used and is drawn from Simons’ (1995) levers of control framework which comprises four dimensions (beliefs, boundaries, interactive and diagnostic control systems). This framework has been adopted by many MCS studies (Abernethy and Brownell, 1999; Bisbe and Malagueno, 2009; Bobe and Taylor, 2010; Henri, 2006b; Sakka et al., 2013; Su et al., 2015; Widener, 2007) and suggests that MCSs can be either used in an interactive or diagnostic manner. The diagnostic approach to using MCSs involves managers using the MCS to monitor organisational outcomes and correct any deviations from pre-standard measures. Alternatively, when MCSs are used in an interactive manner, managers personally engage with subordinates (Simons, 1995), and promote learning and opportunity seeking behaviour (Theriou et al., 2009).
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In examining MCS characteristics, emphasis is placed on the extent to which the use of MCS elements varies between organisations (Whitley, 1999). In this study, three MCS characteristics are adopted from Whitley’s (1999) MCS characteristics framework: formality (formalization), tightness of MCSs, and the scope of MCS information. Formality is regarded as the extent to which a firm emphasizes formal rules and procedures, implying higher institutionalization of impersonal rules. Tightness of MCSs is the extent to which group and organisational behaviour are defined and controlled. Finally, the scope of MCS information refers to the degree of broadness or narrowness of information provided by an organisation’s MCSs (Whitley, 1999).
The thesis research questions on the use and effectiveness of these three aspects of MCSs were informed by a review of the MCS literature, a summary of which is provided in the remainder of the chapter. As an important organisational system, a number of studies have been conducted on MCSs, spanning across different sectors and industries. These studies can be broadly classified as those that examine the use of MCSs (see Section 2.2) and those examining its effectiveness (see Section 2.3). With respect to the use of MCSs, Paper One examines the extent of use of traditional and contemporary management accounting practices, and Paper Two focuses on the factors influencing the use of contemporary management accounting practices. Paper Three investigates the extent to which MCSs are used in an interactive and diagnostic manner, and the extent of focus on broad scope MCS information, the formality of MCSs, and the tightness of MCS. All three papers also examine the effectiveness of MCSs.